Budget Comment March 2014
As is the modern way with Budgets there are various announcement categories to report on:
- This year’s Announcements applicable from 6 April 2014
- Last year’s Announcements applicable from 6 April 2014
- This year’s Announcements applicable from 6 April 2015
- Last year’s Announcements applicable from 6 April 2016
Here’s a few of them:
This year’s Budget applicable from 6 April 2014
ISA changes: OK it’s not 6 April 2014, it’s July 2014. The cash and shares ISA’s will become interchangeable for the first time and you’ll be able to do more of them (up to £15,000). This is a big deal if you have surplus funds to invest.
Capital Allowances (for businesses): There’s a big increase in the Annual Investment Allowance (to £500,000) offsetable in full against profit. It is only due to last until December 2015, but of no interest if you don’t run a business – and a big one at that!
Pension Benefit Reform: There is a relaxation of the rules on Income Drawdown and Cash Withdrawals – but the dramatic news comes in 2015 (see below!).
Last year’s Budget applicable from 6 April 2014
Employment Allowance: There’s a £2,000 credit offsettable against Employers National Insurance available to all business employers (Employers National Insurance is the ‘tax’ levied on employers at the rate of 13.8% of their employee salaries over £7,956). This is a real boost to small businesses employing people. If we do your payroll the relevant adjustments will be made automatically. If we don’t, please ensure the Allowance is claimed.
Pension contributions: The Annual Allowance for contributions into Personal Pensions falls from £50,000 to £40,000 per annum (and the Lifetime Allowance is down to £1,250,000).
This year’s Budget applicable from 6 April 2015
Pension Benefit Reform: This is the drama referred to above – the principal point being that you won’t need to take an Annuity from your Personal Pension! Of course you may need a good tax planner to help you finesse your income and Income Tax Bands! But this measure removes one of the main excuses for not investing in a Personal Pension! It is for people with Defined Contribution Schemes (actually they are usually more Ad Hoc than defined!). There is now a good argument to be less Ad Hoc, more full on – especially if you are a higher rate taxpayer today expecting to be basic rate payer in retirement (subject to proper investment advice of course!).
The 10% Starting Rate band: Did you know this even existed? Don’t be surprised if you didn’t – it doesn’t apply to anyone with non-savings income over £12,000 (that’s anyone with a full time job and the wealthier pensioners!). It sounds good because the band is being almost doubled to £5,000 and the rate is reduced to nil%. In reality this is one for the very few.
New tax free Childcare regime: Due to start in Autumn 2015: if you have a child under 12 at the time please look out for the details…
Last year’s Budget applicable from 6 April 2016
State Pension: Mentioned here in case you forget amid all the other pension chat! For those retiring after 5 April 2016 a new all encompassing ‘Flat Rate State Pension’ is being phased in. Eventually no more ‘Earnings Related’ or ‘Second Pension’ adjustments. A simple (inflation adjusted) £144 per week across the board – so long as you have 35 years of qualifying National Insurance (there is nothing for those with less than 10 years). There will be no differentiation between men and women and the age difference for men and women (remember until recently women took theirs at 60 and men 65) is well on its way to being phased out. By 2020 both sexes will reach State Pension age at 66 and by 2028 it is expected to be 67.
The winners here are the self-employed and the relatively low earners. The losers will be the high earning long term employees who were not ‘contracted out’.
Back to this year’s Budget
A penny off a pint of beer – Bingo!
The two flagship announcements but:
- How come a penny off a pint of beer even gets announced!
- And Bingo – how many people knew it was taxed in the first place? I didn’t!
And two non-Budget topics:
Student Loans
Not a Budget topic but mentioned here because it is still a silent scandal. As we said last year, there are two types of ‘Income Contingent’ Student Loans. Those taken out prior to September 2012 and those taken out on or after September 2012. Repayments are made via additional ‘tax’.
On the former the additional Income Tax rate is 9% on income above £16,365. On the latter the same 9% is paid but on income above £21,000.
The current rate of interest on the pre September 2012 loans is 1.5%, on post September 2012 loans (this is the scandal) it is 6.3%! Over 12 times the current Bank of England Base Rate! Worse – the change coincided with the trebling of Tuition Fees. Outrageous!
Watch these rates – they are prone to significant change. But if you have children taking the post September 2012 loans please also review this option in the light of your ‘family’ finances – does it make sense? And write to your MP!
Auto-Enrolment
This is the fifth ‘pension’ topic referred to here – apologies! Auto-Enrolment is the shorthand expression for the obligatory ‘Workplace Pensions’ that all employers will have to have in place by their ‘Staging Date’. It is being phased in (the phasing has already started for big business). The earliest Blythe client Staging Date is February 2016 (our own date is 1 April 2017). If you run a payroll you have no choice – the matter will have to be addressed (Blythe payroll clients will be contacted well before deadlines strike).
The comments above are brief highlights and each item is subject to change, please note the full chart of Rates and Allowances below and remember – there is always more to it than meets the eye so please contact us before taking or refraining from action.
Rates and Allowances for 2014 and 2015
The chart of new Rates and Allowances is, as always, set out below. Probably the biggest change is the increase in Tax Free income (the Personal Allowance) from £9,440 to £10,000 in 2014-15. Did you think it was £10,500? Understandable if you did but that is next year’s Allowance (2015-16). The good thing for higher rate taxpayers is that the 40% threshold hasn’t been reduced (as it has been recently) in fact it has increased from £41,450 to £41,865. So a real benefit here for higher rate taxpayers. There’s a summary of Tax Rates below reflecting these changes.
2013-14 (£) |
2014-15 (£) |
Increase (£) |
|
| Income tax allowances | |||
| Personal
allowance Personal allowance for people aged 65-74 Personal allowance for people 75 and over |
9,440 10,500 10,660 |
10,000 10,500 10,660 |
560 0 0 |
| Income
limit for under 65 personal allowance Income limit for age-related allowances |
100,000 26,100 |
100,000 27,000 |
0 |
| Married
couple’s allowance for people born before 6 April
1935 Minimum amount of married couple’s allowance Blind person's allowance |
7,915 3,040 2,100 |
8,165 3,140 2,160 |
250 100 60 |
| Capital
gains tax annual exempt amount: Individuals etc Trustees |
10,900 5,450 |
11,000 5,550 |
100 100 |
| Inheritance tax threshold | 325,000 |
325,000 |
0 |
Taxable
bands 2013-14 (£) |
Taxable
bands 2014-15 (£) |
||
| Starting rate 10% | – |
Starting rate 10% | – |
| Basic rate 20% | 0
– 32,010 |
Basic rate 20% | 0
– 31,865 |
| Higher rate 40% | 32,010
- 150,000 |
Higher rate 40% | 31,866
- 150,000 |
| Additional rate 50% | Over
150,000 |
Additional rate 45% | Over
150,000 |
| Corporation tax profits 2012 (£) | |
| Small companies’ rate 20% | 0
– 300,000 |
| Marginal relief | 300,001
– 1,500,000 |
| Main rate 23% | 1,500,001
or more |
National Insurance
2013/2014 |
2014/2015 |
|||
| Class 1 Employees | ||||
| On first | £149 pw | Nil | £153 pw | Nil |
| Between | £149 - £797 pw | 12% | £153 - £805 pw | 12% |
| Over | £797 pw | 2% | £805 pw | 2% |
| Employee's contracted-out rate | 1.4% | 1.4% | ||
| Class 1 Employers | ||||
| On first | £148 pw | Nil | £153 pw | Nil |
| Over | £148 pw | 13.8% | £153 pw | 13.8% |
| Employers' contracted-out rebate, salary related schemes | 3.4% | 3.4% | ||
| Employers' contracted-out rebate, money purchase schemes | Abolished | Abolished | ||
| Class 2 Self employed | ||||
| Flat rate | £2.70 pw | £2.75 pw | ||
| Small earnings exception | £5,725 pa | £5,885 pa | ||
| Special Class 2 rate for share fishermen | £3.35 pw | £3.40 pw | ||
| Special Class 2 rate for volunteer development workers | £5.45 pw | £5.55 pw | ||
| Class 3 Voluntary | ||||
| Flat rate | £13.55 pw | £13.90 pw | ||
| Class 4 Self employed | ||||
| On profits between | £7,755 - £41,450 pa | 9% | £7,956 - £41,865 pa | 9% |
| above £41,450 | 2% | above £41,865 | 2% | |
Stamp Taxes
Transfers of property (consideration paid)
| Rate | All
land in the UK |
|
| Residential | Non-residential | |
| Zero | £0 – £125,000 | £0 – £150,000 |
| 1% | Over £125,001 – £250,000 | Over £150,001 – £250,000 |
| 3% | Over £250,001 – £500,000 | Over £250,000 – £500,000 |
| 4% | Over £500,001 – £1,000,000 | Over £500,001 |
| 5% | Over £1,000,001 – £2,000,000 | N/A |
| 7% | Over £2,000,000 | N/A |
| 15%* | Over £500,000** | N/A |
** The threshold for the15% rate is reduced to £500,000 from 20 March 2014.
The rate of stamp duty / stamp duty reserve tax on the transfer of shares and securities is unchanged at 0.5% for 2014/15.
Value Added Tax (VAT)
| April 2013-14 | April 2014-15 | |
| Standard rate | 20% | 20% |
| Reduced rate | 5% | 5% |
| Zero rate | 0% | 0% |
| Exempt | n/a | n/a |
Value Added Tax (VAT) – Registration and Deregistration thresholds
| From April 2013 | From April 2014 | |
| VAT - registration threshold | 79,000 | 81,000 |
| VAT - deregistration threshold | 77,000 | 79,000 |